Economic Order Quantity (EOQ) Practical Problems and Solutions

Problem No.1 The john equipment company estimates its carrying cost at 15% and its ordering cost at $90 per order. The estimated annual requirement is 78,000 units at a price of $4 per unit. Required: (i). What is the most economical no. of units to order? (ii). No. of orders to be placed in a …

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How to calculate profit and loss on contracts?

The procedure for the determination of profit or loss on contracts under different circumstances may be given as follows: 1. Profit on Completed Contracts: In case of contracts completed during the accounting year, the full contract price, whether payable in lump sum on the completion of the contract or payable by installments, shall be debited …

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Pricing of materials returned to vendors

Materials returned to vendors may be recorded at invoice price or in accordance with the method adopted for pricing out material issues. Recording of materials returned at invoice price is not realistic as the price per unit granted by vendor on return of materials cannot be the same as the original invoice cost. Necessary adjustments …

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Valuation of materials purchased/received

Valuation of materials – Meaning One of the main objects of cost accounting is the ascertainment of accurate costs and the accuracy of costs depends upon the ascertainment of the accurate cost of materials consumed and labour used in the production of a particular product. Material is the most important element of cost and it …

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A.B.C analysis of material control

Definition A.B.C. Analysis (or Proportional Parts Value Analysis) is a technique followed for the purpose of exercising control over materials according to their importance or value. Explanation Under this system, all the items of material are classified into three categories A, B and C according to their value. Category ‘A’ consist of materials which constitute …

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Material Costing Practical Problems and Solution

Problem No. 1 How to calculate raw materials to produce finished product/goods? A factory uses a particular raw material. There are three processes A, B and C. The data relating to inputs, outputs and rejections during the month of April are given below: Inputs (in pieces) (Including opening W.I.P) Rejections (in Pieces) Output (in pieces) …

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What is Material Requisition?

Whenever certain materials are required in a production department, it has to prepare a Materials Requisition. Materials Requisition or ‘Requisition Slip‘ or ‘Materials Requisition Note‘ can be defined as “a document which authorizes and records the issue of material for use “. In other words, Materials Requisition is a document which is used for drawing …

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Methods and Principles of Codification of Materials

Methods of Codification Some of the common methods of codification of materials may be enumerated as follows: 1. Alphabetical Codification of Materials As the name indicates, this method involves the use of letters of alphabets as codes to facilitate easy and quick identification of materials. For example: Symbole Description A Raw Materials B Tools and …

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Stores management in manufacturing concerns

In manufacturing concerns, stores may be managed as: (a) Centralized Stores, (b) Decentralized Stores, and (c) Centralized Stores with sub-stores. Centralized Stores Management Centralized storing refers to the setting up of a single store-house for the whole organization. It caters to the needs of all the departments working in the organization. Such stores are advocated …

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Receiving and Inspection of the materials

Receiving of Materials In small and medium-sized manufacturing concerns, functions of receipt and inspection of materials are to be performed by the stores department or the store-keeper. But in case of large manufacturing concerns, generally, a separate Receiving Department is set up. The Receiving Department has the following functions to perform: (i) To receive, unload …

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Classification and Codification of Materials

Classification of Materials ‘Classification‘ refers to the systematic division, grouping or categorization of materials or store items with reference to some common characteristic. Classification of materials can be made on different bases namely nature, manufacturing process, value, purpose etc. For identification of materials being purchased and stored it is necessary that they should be properly …

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Inspection and Storage of Materials

Inspection of materials With the development of new products and quality improvement of old products as a result of increasing precision capabilities in measurement and manufacturing techniques, it has become necessary to thoroughly inspect the materials purchased either at the supplier’s godown or at the time goods are received by the receiving department. The main …

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Economic order quantity (EOQ)

Definition and Meanings Economic order quantity (EOQ) is the order quantity of inventory that minimizes the total cost of inventory management. EOQ refers to the size of the order which gives the maximum economy in purchasing any material. It is the optimum of standard ordering quantity. Explanation This concept relates to the quantity of materials …

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